The new Austrian tax reforms aim to inject economic growth by lowering tax rates on low and middle incomes. Approximately 40 laws need to be altered these reforms will only come into force in January 2016.
The reforms are geared for citizens in the lowest income bracket. There will now be a deduction 25 percent in taxes, down from the current 36.5 percent on yearly incomes under €18,000. Families with two children, on an average income, will receive a tax refund of around €1,580 a year. Tax rates on capital gains and non-wage income at these levels will however remain unchanged. Retirees will receive an annual tax credit of up to €100 if they receive less than €1,100 per month. Tax credits for children are to be increased to €440.
The government plans to finance the reform by fighting tax evasion, closing tax loopholes and raising the tax rate to 55 percent for those who earn more than €1 million a year.
According to Johanna Richter of Schmidt Karl Ludwig (SKL) Wien, the withholding tax (Kapitalertragsteuer; KESt) is to be raised from 25% to 27.5%, although no changes will be made to the withholding tax on savings interest. The withholding tax on interest remains at 25%. Although dividends are currently the focus of media reports, it is to be expected that this increase is to affect all other capital income as well (e.g. dividends and similar income from the provision of capital, capital gains on disposal, profit from derivatives and distributions from private foundations). The increase of the withholding tax means that the total tax burden on distributed profits from corporations (after deduction of the corporate tax of 25%) is raised from the current rate of 43.75% to 45.625%. This may affect company shareholders, increasing capital gains from the rate of 25 percent to 30 percent.
Austrian consumers and retailers will have to finance the reforms, with the lowest rate imposed on goods and services to be raised from 10 to 13 percent. This applies for instance to animals, seeds and plants, cultural services, museums, zoos, film screenings, wood, vineyard sales of wines, air travel, public pools, youth care and guest accommodation (the VAT for the latter is to be increased only as from 1 April 2016).
Additional savings will be made by reducing some tax write-off. The government also expects to claw back some €1.9 billion in lost taxes through closer inspections on cash transactions. In addition, some tax perks including those on company cars would be scrapped. Anti-fraud measures includes the mandatory introduction of cash registers and a central register of accounts as well as the lifting of banking secrecy (particularly within the context of company tax audits).
Johanna Richter says “The government is under pressure to deliver economic results, it also has to gain voter confidence, as the far-right Freedom Party is leading in some of the latest opinion polls”.
Real estate transfer tax is to be increased. In future, this tax is to be calculated on the basis of the market value and not the more favorable standard value of a property even when such property is transferred within the family. This in fact constitutes the introduction of inheritance tax through the back door.
The Farmer’s Union is appealing against the proposed tax increase on feed, seeds, flowers and live animals, the tourism industry has announced plans to protest against the proposed VAT increase on hotel rates and nearly 500 publicans and bed and breakfast owners protested against increased taxes on their businesses. The real estate industry expects prices for apartments and houses to increase, mainly because of the increase in property tax from the current 25 percent to 30 percent.